ANZ takes on cancelled shipment report

ANZ analyst have noticed the impact of rising freight rates as a report reveals a cape-size cargo of Australian thermal coal has been cancelled while it is already on the water in south China.
ANZ takes on cancelled shipment report ANZ takes on cancelled shipment report ANZ takes on cancelled shipment report ANZ takes on cancelled shipment report ANZ takes on cancelled shipment report

Courtesy HVCLT.

Blair Price

According to Reuters the cancelled seaborne shipment’s cargo was valued at $US72 a tonne.

“The implication from the overnight news was that coal demand in China may be waning, due to high stockpiling and/or weaker physical demand,” ANZ said in a commodity update.

“This would be a big thing considering, along with India, Chinese demand has held up the coal market for the past six months.

“We believe Chinese coal demand is cooling, but that a major pullback in China coal imports is unlikely.”

ANZ noted that Chinese thermal power numbers revealed an 8.8% year-on-year decline in electricity output in May, while Chinese thermal coal production was up 9.4% year-on-year in the same month.

But despite these negative circumstances for Australian thermal coal exporters, ANZ sees a cancelled seaborne coal shipment as a more likely result of higher freight rates.

“We've seen abnormal circumstances in the past six months where higher-quality Australian coal has been delivered into China at a discount to China's domestic coal.

“This positive arbitrage window appears to be closing because of the recent jump in freight rates.

“This more likely explains the reason Chinese traders, which are notoriously price sensitive, have cancelled the seaborne order.”

In its outlook ANZ said it did not expect Chinese coal prices to dip to a deep discount to Newcastle delivered coal.

“High sticky Chinese production costs will keep Chinese coal prices high, and an expected pullback in freight rates will create a more attractive delivered Newcastle coal price.”

Four weeks ago Patersons Securities coal analyst Andrew Harrington told ILN that domestic thermal coal contracts struck in China in June could close up the cheaper price window offered by Australian exporters.

Newcastle’s spot thermal coal was up 6.46% on the globalCOAL NEWC index to $US73.13/t for the week ending Friday.